Q4 2022 Hooker Furnishings Corp Earnings Call
Yes.
Greetings, ladies and gentlemen, and welcome to the Hooker furniture quarterly Investor Conference call reporting its operating results for the fourth quarter 2022.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
I ask a question. During this session you will need to press Star then one on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Paul Heartfelt, Vice President Finance and Chief Financial Officer for Hooker Furniture Corporation.
Okay.
Thank you Liz.
Good morning, welcome to our quarterly conference call to review our financial results for the fiscal 2022 full year and fourth quarter, both of which ended on June 32022. Joining me. This morning is Jeremy Hall, our Chief Executive Officer, We appreciate your participation today.
During our call we may make forward looking statements, which are subject to risks and uncertainties for a discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2022 year end results.
Any forward looking statements speaks only as of today and we undertake no obligation to update or revise any forward looking statements to reflect events or circumstances after today's call.
This morning, we reported consolidated net sales of $594 million, an increase of $53 5 million or 10% compared to last year driven by year over year sales increases of more than 20% in both our hooker brands branded and domestic upholstery Sir.
These sales gains were partially offset by a 1% sales decrease in the home Meridian segment.
We reported net income of $11 7 million or <unk> 97.
Per diluted share this year compared to a net loss of 10 million or <unk> 88 per cent per diluted share last year.
Last year's loss was due principally to a $44 million or <unk> 34 million net of tax.
Noncash intangible impairment charge.
The fourth quarter, which began on November one 2021 and ended on January 30 of 2022 was seriously impacted by Covid related factory shutdowns in Vietnam, and Malaysia, which resulted in a 13% consolidated sales decreased in the quarter.
In the quarter consolidated net sales were $135 million with it.
The decline driven by a 24% or $19 million revenue decrease at <unk>, and a 12% or $5 8 million sales decrease.
Good Brad.
These lower sales were slightly offset by a $3 million or 13, 5% increase in the domestic upholstery segment.
For the 22 fourth quarter the company reported a consolidated net loss of $4 million or <unk> 33 per diluted share as compared to a net income of $8 $5 million or <unk> 71 per diluted share in the fourth quarter of fiscal 2021.
The quarter operating loss was primarily a function of a $12 million operating loss at home Meridian contributing factors in the fourth quarter loss included inventory unavailability due to Covid related agent factory shutdowns from August through late in the year continued high freight costs.
And e-commerce , and hospitality furniture sales and cost of approximately $5 million for the company's planned exit from unprofitable businesses and channels now.
Now I'll turn the call over to Jeremy to comment on our fiscal 2022.
And fourth quarter results. Thank you Paul and good morning, everyone for much of the year, we successfully mitigated a multitude of macroeconomic challenges while growing sales remaining profitable in undertaking its transformative strategic initiatives for our long term expansion of the business.
This was particularly true on the Hooker legacy side of our business and during the first half of the year for all segments. During the first half all segments achieved double digit sales increases and we were able to better meet historical levels of demand with the right product Assortments and inventory readiness some of the macroeconomic challenges we face.
<unk> included store and ocean freight costs and shipping bottlenecks through the year.
Material and component parts inflation staffing and Tom shortages.
During the course of the last 18 months transportation costs more than tripled substantially increase in our cost of imported goods sold.
We were able to mitigate these dynamics until late summer when the unexpected COVID-19 related shutdown of Asian factories began in August and continued through late in the year.
While incoming orders remained strong and backlogs were at historic highs. This loss of production capacity virtually halted much of our supply of imported products.
Home Meridian immediately and even began to cause out of stock issues and low inventory receipts at hooker branded in the fourth quarter, despite that segments U S warehousing model.
All of these factors contributed to the 13, 2% consolidated sales decreased in the fourth quarter over.
Over the last few months Asian factories have began have begun to ramp up production again.
And are currently operating at around 85% to 90% capacity and improving weekly.
While we are confident that production of imported goods will reach 100% capacity in the near future. We will not feel the full impact of higher production until the second quarter as we forecasted late last year.
Our planned exit from unprofitable businesses and channels at <unk>, including inventory write downs charge backs from the clubs channel and order cancellation costs as we wind down or RTA furniture business resulted in one time cost of over $5 million in the fourth quarter, which was a major driver of our consolidated.
Net loss during the final quarter of the year.
However, we believe these strategic exits will help boost profitability going forward as they allow us to focus on more profitable businesses and stable channels to drive long term growth.
Even as economic factors beyond our control buffeted, our financial performance beginning late last summer.
We continue to create long term momentum and pursue new opportunities to expand the business.
We undertook strategic initiatives such as opening the largest facility in our history and our history and 800000 square foot distribution center in Savannah, Georgia to help HMA reduce cost and delivery times to our customers other ambitious initiatives in the second half included entering in the Las Vegas furniture market with an 8500 square foot showroom to serve.
Interior designers in the Western U S. On January 31, 2022, we entered the fast growing outdoor furniture arena with the acquisition of upscale resource Sunset west, creating an opportunity for incremental sales as we become a player in an increasingly important furnishings category with an outlook for.
Sustained growth.
Finally, we are extremely excited about our plans to have all hooker legacy divisions move showrooms at high point market. Beginning next April as our companies occupy the entire 113000 square foot third floor of the show place building, our hooker legacy companies will have immediate increases in exposure necessary.
<unk>, our organic growth initiatives now I want to turn the discussion over to Paul heartfelt, who will discuss highlights in each of our segments.
Thanks, Jeremy.
I will go over the performance of each of our segments beginning with poker brand.
For the 2022 fiscal year net sales increased by $38 million or 23, 5% compared to the prior year.
The revenue gains are attributed to a stronger product portfolio with effective supply chain and logistics management and robust consumer demand.
<unk> brand managed branded managed well through some turbulent economic conditions, while achieving double digit sales gains and increased profitability through the first nine months of the year.
A decision to auto prices and the backlog had a short term unfavorable impact on margins, but by the end of fiscal 2022. The majority of shipments in the Hooker branded segment carry price increases which were implemented in July 2021 to mitigate higher ocean freight and product cost inflation.
However, sales volume declined in the fourth quarter due to reduced inventory availability, resulting in lower operating income compared to the fiscal 2021 fourth quarter.
Incoming orders increased by 24% compared to the prior year period, when businesses had already dramatically rebounded.
From the initial Covid crisis backlog remained historically high at nearly doubled as compared to the prior year end.
Backlog was already at a high level, although part of that increase was being pursued as lower shipments in the fourth quarter.
Moving to the home Meridian segment net sales decreased by 1% compared to the prior year period due to decreased unit volume as a result of Covid related factory shutdowns in Vietnam, and Malaysia, which led to lower churn.
For the fiscal 2022 fourth quarter <unk>.
The <unk> segment sales decreased by $19 million or 23, 7%.
As compared to the prior year fourth quarter.
Sales increases in the first and second quarters at <unk> were offset by the sales volume loss during the second half.
Driven by higher freight costs exit costs from the RTA furniture category and significant chargeback from the clubs distribution channel HMA recorded a $21 million loss for the year.
Higher freight costs adversely impacted gross margin by 530 basis points in fiscal 2022 and were the primary driver of increased product costs.
Current and expected future freight costs, which which will have an adverse impact on potential profit margins caused us to rethink our entry into the RTA furniture products category. Consequently, <unk> exited the RTA category and incurred one time order cancellation costs of $2 6 million.
In addition, due to the continued poor profitability in excess charge backs of $2 9 million in the year.
<unk> made the decision to exit the clubs channel exiting. These two businesses is also resulted in write downs to dispose of obsolete and excess inventory.
Although these actions adversely affected our earnings and contributed to the operating loss in this segment, we're now freer to position, our working capital and resources on the solid businesses like Pulaski Samuel Lawrence.
H and Cri with the goal to be in stock in our new 800000 square foot warehouse to service growing channels, such as brick and mortar retailers. The interior design trade and E Commerce.
While still growing our mega accounts as appropriate.
The domestic upholstery segment net sales increased $18 6 million or 22% in fiscal 2022.
Due to double digit sales increases at all three divisions.
For the fiscal 2022 fourth quarter domestic upholstery sales increased $3 million or about 13, 5%.
Domestic upholstery achieved year over year sales increase was during every quarter of the fiscal year.
However, gross margins decreased as compared to the prior year and pre pandemic levels as this segment faced manufacturing constraints, which adversely affected.
Profitability, including foam shortages early in the year higher raw material and freight costs and labor shortages and inefficient.
The segment reported operating income of $4 3 million or four 2% operating margin as compared to the 12, 4% operating loss in the prior year, which was attributable to a $16 million noncash intangible asset impairment charge.
Incoming orders increased by 38% in this segment finished the year with an order backlog of 122% higher than the prior year when backlog levels were already at historical highs.
Our manufacturing capacity is increasing which will help us address this much higher backlog.
In our all other.
Net sales increased by $200000 or one 7% compared to the prior year due principally to sales increases in our lifestyle brands Division.
Business that started in fiscal 2019 targeted at the interior design churn. Although this business is still small net sales to the growing interior design channel increased by 80% compared to the prior year.
For fiscal 'twenty.
2022 fourth quarter, all other net sales increased by $1 million or 46% as H contract net sales increased by 44%, which offset sales decreases in the first three quarters.
H contract incoming orders increased 27% in fiscal 2022 and finished the year with a backlog of 126% higher than the prior year.
And finally, our balance sheet remains strong cash and cash equivalents stood at $69 million.
At fiscal 2022 year, and a modest increase over the balance at the fiscal 2000 22021 year end.
During fiscal 2022, we used a portion of the $19 million of cash generated from operations to pay 8 million $8 8 million in cash dividends and $6 7 million in capital expenditures, primarily on our newly opened Georgia distribution center and enhancements to our facilities and other systems.
While inventories are still not at optimum levels due to service demand and backlogs.
We have significant inventory in transit and expect our inventory levels to improve incrementally during the first quarter.
Fiscal 2023 and dramatically in the second quarter.
I also need to.
To add that we spent $25 million of our available cash in early fiscal 'twenty three to acquire the assets and businesses of Sunset West.
Now I will turn the conference the discussion back to Jeremy for his outlook. Thank.
Thank you Paul.
Incoming orders and backlogs continue to be strong across most divisions. We are concerned about ongoing global logistics constraints and economic headwinds affecting the consumer that could impact short term demand such as inflation high gas prices and the war in Ukraine.
As we mentioned earlier, we expect production capacity of our Asian suppliers to improve significantly reaching a 100% capacity at some point during the first quarter, although the full financial impact of this improvement in inventory readiness won't be felt until the second quarter as the spring high point market concluded last week, our attendance was up $26.
Compared to June 2021 high point market and about 12% compared to the 2021 fall market, we had major new product placements across all brands at Hooker legacy and <unk> with the market as close to normal as we have seen since pre pandemic.
Big Sky, a 60 piece whole home collection with rustic finishes at Hooker case goods inspired by the natural beauty of the American Wilderness was the hit of the market. In addition customers. We're very excited to see the sunset West outdoor furniture line shown for the first time at high point market and Pulaski Samuel Lawrence <unk>.
<unk> had very significant new placements with their major customers.
We continue to be encouraged by long term trends such as demand for housing the renewed and sustainable focus on home interiors and exteriors and the prospect of the two largest demographic groups in history entering their prime earning and household formation years, while we have worked through a broad spectrum of challenges during the year. Our team has continued to focus on multiple.
<unk> growth initiatives, many of which will positively impact us in the next six months to 12 months.
This ends the formal part of our discussion and at this time I will turn the call back over to our operator Liz for questions.
As a reminder, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Withdraw your question press the pound key.
Our first question comes from Anthony Lubensky with Sidoti.
Good morning, and thank you for taking the questions.
So yes, I do have a few questions here so first.
Can you quantify the backlog.
Are you seeing any notable order cancellations.
Ended the year $340 million consolidated backlog.
Seen some cancellations.
Mostly on the home Meridian side.
Homeowners backlog is still pretty healthy.
Mhm.
And the reason why.
What would you attribute the order cancellations for <unk> is this people the retailers don't want to wait.
Sure.
Well best describe the reasons for the order cancellations.
With the shirt. This is Jeremy Anthony good morning.
Down.
Factories, there was a buildup of inventories with many retailers, which caused space issues.
Their business model is much more of a very far out planned.
Planned.
On every level. So all of those containers are planned out so we.
We weren't surprised to see some level of cancellation with everything going on.
Got it okay.
Yes.
So.
Obviously.
<unk> fits.
Ben.
Headache for you guys for a while here are you done pretty much now with the.
The cost related to the RTA.
And the club channel issues or will any of that spill over into the first quarter or the rest of the fiscal year.
Yes, so we feel like we got a lot of the things we talked about it.
Profitable businesses getting out of those as very much we think it's mostly behind us. The only remaining really is about $1 7 million and <unk> inventory.
Which which is really low compared to what we what we would have been if we hadn't canceled all of those orders and some of that we referred to write taken inventory right now.
We should be reserved for.
Losses on them.
So yes, we were.
Wyman Wanda.
Okay. So so that $1 $7 million is that going to be all in the first quarter or is that already.
I just wanted to get a little bit more clarity about that that's not going to $1 seven im not saying thats going to be any type of write down I'm, just saying that's the level of inventory we have left.
So not necessarily lose money and we reserved against it so they'll adopt it shouldnt impact our results.
Got it that's very low and almost gone we're almost out of it.
Okay got it alright, thanks for clarifying that okay. So.
Prior to Covid and the tariff issues.
<unk> segment operating margins typically in the mid single digits.
So is there a viable path to get that back to those types of segment margins and if so when would be a reasonable timeframe to expect that.
So.
All of the margins that you've seen from H. My obviously included the clubs channel. It included RTA mass included everything that we're talking about that we're almost out of so when you take those terrible margins out of that overall average we had these good businesses underneath that debt will now show up so.
I believe it's we're in it where we're going.
To get a pretty respectable margin with <unk> within the next quarter or two and an ongoing from there because we're not going to be in these high risk scenarios, where we're not sure which surprises coming next.
It was tougher for richemont, even starting with.
With the tariffs it was tougher for them to react to the tariffs and I think that they've absorbed that now too.
And two to further cement my point Pulaski Samuel Lawrence Priv, they were all hitting budget before before we hit the eight one.
Factory shutdown.
Mhm, Okay. No one can know one can see that.
Those are the reasons I just stated.
Got you Okay. So now that you're exiting the club channel business can you just talk about.
How much revenue.
Did that contribute to the fiscal year from the club channel.
Now that you don't have those sales are those lost sales.
Do you expect to at least partially offset that with sales to other customers.
Yes, so it was roughly $20 million, it's been as much as $90 million previous years, we were down to 20 and now of course, we're going to zero.
We won't be exactly zero this year, but we will get closer much closer to getting clear out.
So as far as far as how we replace that we believe number one it was a capacity constraint for the rest of our businesses. So we feel a lot of much of that can transfer over to <unk>. For example from a production capacity. So we really we don't feel like were going to lose $20 million in revenue because we got out of.
Clubs business.
Okay got it yeah, thanks for that.
So just in terms of the cost issues, obviously, you called out the freight cost which has been impacting not just you guys, but the entire industry.
Since the fiscal year and have you seen any changes to the cost whether it's ocean freight or anything else that you want to call out.
I would say, we've seen a little bit of relief, but not enough to really.
Talk about a net positive or a way is how I would summarize it work.
And this usually isn't a good strategy, but we're hopeful that the.
The costs are going to come down as the year progresses, but right now the logistics the freight situation all of those things are still very difficult I will say.
The entire year fiscal year last year, we mitigated and manage through that very well from a profitability standpoint for the overall company until we hit a one factory shutdowns. So I feel our team feels positive and optimistic about what we're able to do if you just if we just.
The factories running like they are now and soon to be 100%.
Got it okay. Thanks for that Jeremy and then.
So given the timing of your call today I mean, you are only about two five weeks from finishing up the first quarter.
What can you tell us about current quarter revenue and bottom line trends.
Guys.
But I mean, just kind of.
Can you give us some more color as to what youre seeing thus far that'd be very helpful.
I don't think we can give a really good answer on the quarter, yet on where we are where we think it is going to be Paul.
I'd have to agree.
It's only two five weeks, but by the time, we pull this all together.
I think it's probably in line with what we're hoping for.
I can't say much more than that at this point.
Okay. That's fair, Okay and then.
Obviously, you guys have a strong balance sheet.
Generating positive free cash flow.
So how should we think about your cash flow priorities, particularly interested in Europe .
The outlook for potential share repurchases.
We get this question all the time.
I think.
Yeah.
With the uncertainty still in the economy right now I think we're cautious about committing cast I know that our stock. We generally believe our stock is a terrific buy.
But I think we're also cautious caution has been.
The theme of this company for 98 years.
I think right now our first priority is to bolster the balance sheet. We just spent $25 million on a what we think is a great acquisition.
You've talked about that before.
I think that the first step is to bolster the balance sheet in case.
Just in case of some of these macroeconomic events.
<unk> settled out in the near future between the war.
The freight issues as Jeremy said, we think that freight stabilized but I.
Right now the primary the primary objective is to make sure. We got a strong balance sheet to get through whatever may materialize in the coming months.
Got you, Okay that makes sense, okay alright.
That's all I had thank you very much and best of luck. Thank you Anthony.
Our next question comes from Sandy Mehta with evaluate research.
Yes, hi, good morning, Thanks for taking my question two questions.
Can you talk a little bit about.
Price increases.
But in the industry is increasing prices.
And.
What is the elasticity of demand in terms of our consumers accepting the price increases in housing prices have gone up a lot is there a crowding out phenomenon that people are spending as much money or their budget on the.
How is that the furniture purchase will happen, but it may be differ maybe some comments on that please.
So first part of the question.
We believe that.
The price increases have obviously been ongoing.
For a while it seemed like particularly in raw materials as it relates to our domestic manufacturing it seemed like daily things were going up in different ways.
Obviously reacted to those from a from a price increase standpoint.
And really if you look at the difference or the delta between.
Raw materials and factory increases versus how much of our increases have been freight.
It's dramatically.
Increased on the freight side of the equation versus what has happened on an actual inflation for manufacturing cost in raw materials and whatnot driving prices up so.
Regarding the inflection point and where that starts to hurt us from a demand standpoint, it really can't pretend to know that.
I know that this is these issues are across not just our industry, but across the world, obviously and we feel as though we're competitively in line across the board.
As far as who we would compete with than what they've had to do and how they've had to react.
We of course get Intel from saying seeing prices go up out in the market and we understand where we're pricing as it relates to where others are so I think that we've done what we have to do for the costs that have been coming in from every direction.
But I don't I don't know if I can give you a really great answer on where demand will go due to the pricing.
Our price increases have only been to try to keep pace with our cost increases. We certainly were not using this as an opportunity to expand margins and in fact, sometimes our price increases trail, which I think we referenced in the call correct.
To answer your question Sandy.
Yes, and is there a crowding out phenomenon that with home prices still rising that people.
Budgets for the furniture.
While they will spend but maybe it's deferred.
That gets squeezed out a bit a little bit.
We haven't seen that yet.
Yes housing housing prices are still high there is still a huge demand for housing.
And yes, you're right everything is a lot more expensive furniture is more expensive, but I think that with the housing demand.
I think we referenced in our call millennials and Gen Z entering prime earning years household formation, we still think that demand is going to be there.
People may adjust their purchasing patterns.
We haven't seen any evidence of that yet, but I'm sure. There is an inflection point.
And also I would mention that our team I believe basically pretended like we werent in the high demand environment, we've been in and we've been working on a lot of initiatives that are going to actually hit us in a positive way in the next six to 12 months.
We believe that gives us a lot of reasons to be optimistic when you look at everything we have going on that's going to help the company from a market share standpoint as well.
Great. Thank you so much thanks Youre welcome. Thank you.
Our next question comes from Barry Haimes with Sage asset management.
Thanks, so much.
A couple of three questions one is.
You talked about Vietnam, and Malaysia, but could you just remind us.
Sure.
They're sourcing countries kind of.
Percent just to get a feel for.
Where the where the products coming from.
Good morning.
We can give you kind of a general answer on that is that.
Alright, Im going to give you yes, no just trying to get a sense correct basically a major part of our sourcing.
And then you would get.
Yes, 75% would be roughly the Vietnamese number for how much how much products, we have been sourced out of that country and then it would be split between China and Malaysia, Malaysia is probably second and then you get into China, Mexico, India, we've been absent Portugal.
There are some things we're looking at eastern Europe , which of course, we're rethinking that entire thought process, but thats really where were dominant and of course, our domestic U S footprint.
Significant to us as well.
Got it.
That's very helpful. And then secondly, we talked a little bit about the freight cost.
And it generally went up as we went through last year. If we look at kind of budget all of this year versus last year any feel for.
What percent increase we should be baking into our thinking.
So youre asking what maybe what we averaged last year versus what we may be think will average this year percentage correct yes.
I know.
After peak for example in terms of spot rates and such but.
The contract rates I believe.
For this year are higher than last so when you shake that all out.
Again, I'm, just kind of looking directionally should we be looking for.
Double digits high single digit in any kind of feel for.
Kind of year over year freight.
Well if you if you just simply go by contract rates, which.
The history, thus far in this hole.
The challenge has been the contract rate do you have that and of course, you can't get enough capacity on the contract rate and you end up getting spot rates that average that number up for the overall company.
So we're not sure and I don't think anyone assure whether the contract rate is going to average up or average down this year, meaning our spot rates that theyre going to start to come down and spot rates are going to drive the entire company average down so I start with the answer that question has to start with we arent sure which direction that could go.
Average was but if you simply go by contract rates were going to average probably in the neighborhood of 40% more on a contract rate basis than we did last year.
Got it.
Uh huh.
So again, just one final question on that.
Again without predicting this year.
If we look at last year in terms of what percent.
<unk> was under contract versus what percent you had it been in the spot market and you can get rough feel for that.
Paul I would say it was almost 50 50, yes, it was 50% of each last year.
Got it okay. Thanks, that's very helpful. And then my final question is.
I totally agree with you guys.
Demographic outlook is positive.
But one possible offset could be.
Demand pull forward as we went through the pandemic and everyone focused on home and.
Consumer durables and Couldnt travel and so on so as you guys are thinking about your business.
Or do you think about that is there.
Any way you can try to keep your finger on the pulse do you get Pos data from any of your customers any anything you can share on how youre thinking about that would be great. Thanks. So much.
Youre welcome.
Our thoughts on that is of course, we acknowledge a COVID-19 COVID-19 bubble of demand, which.
I don't think anyone believe would be sustainable at that level and candidly I don't know of a company that was able to supply at that level effectively either so our team has been watching closely versus 2019.
Pre pandemic to see where we are where we believe we are from a market share standpoint, and again trying to build on the strategic initiatives that we feel are going to help us gain market share.
Towards our organic growth as well on the defensive side, we have an S&P process.
So we're constantly monitoring incoming orders.
From a demand and shipments so.
I think we are.
We're not going to get caught with too much inventory we make it.
If business slows down I think we have enough systems in place that will catch that so we won't get caught.
They have a little bump in inventory, but we're not going to get caught with the success of massive excess inventory.
Great and just one follow up on that what is your normal sort of.
Of supply.
Timeline.
Coming from Asia to the U S.
Now as you've given order to the Asian factory.
When is it sort of ready to be delivered in the U S. How long is that timeframe.
So.
First of all it depends on the factory and it depends on the country and it depends on a lot of different things, but in general.
Lead times have started to come down we just actually recently got word of this.
And it is very positive because thats that ascertains the amount of safety stock that we have to obviously carry so factories are starting to.
Definitely improve their capacity and our lead times I mean, we could have been on a lot of our factories, we could've been a year out or over a year out on a lot of things, whereas we're seeing more in that five or six month type arena, which we can very well hand, we can handle that that's a little more than our historic wheelhouse I think our average lead times were up.
Including those year outs and some of the biggest suppliers were up around nine or 10 months and theyre down to somewhere over a year, yes, yes.
Great. Thanks, Thanks, so much I appreciate the help.
Absolutely. Thank you.
Our next question comes from John <unk> with Pinnacle.
Good morning, most of my questions have been answered, but I just thought of.
A couple.
The $5 million.
Nonrecurring expense in the fourth quarter for the wind down of the RTA.
What was that for the year and it was $5 million for the fourth quarter, but what did those issues.
The impact of the year.
Most of those happened in the fourth quarter third and fourth quarter.
It's.
It's Scott.
About $2 5 million for the to get out of the RTA business, another $2 5 million.
<unk>.
Charge backs from in the clubs channel or almost $3 million and the clubs channel. The rest of it was inventory write downs and reserves, which we took at the end of the year and let me let me be clear.
<unk>.
We say not onetime charges. These are unique charges I mean, technically we can't call them, we shouldnt call them onetime charges, but they are unique charges.
We're getting out of those businesses. So we should as these are cost of exiting.
Okay. So there was nothing in prior quarters related to these.
The RPI exit.
Within the third quarter.
I'm, sorry, I, just don't recall, what the charge will that happen.
Of exiting the RTA business was in the third quarter I'm, sorry, what was the amount.
In the third quarter Okay.
So and then there was 5 million in the fourth quarter.
For everything.
Yes, the rest of that was inventory write offs. Okay got you and all of that ran through the gross margin line correct, yes. Okay.
Okay.
Oh.
Now that you've completed the Savannah warehouse in the showrooms.
Would you guess is your capex budget for the coming fiscal year.
We haven't completed the showrooms.
We've started the showrooms.
Thanks.
Next year I would say that the Capex budget is probably in the $88 million range.
With ERP and showrooms are going to be the biggest piece of that next year and then we should return I would guess six.
Subsequent to that probably in the.
6 million $5 $6 million range after next year.
Okay, Great that's helpful.
Finally.
The acquisition of Sunset West It seems like.
Our new segments, where you.
Can you give us some color there.
To the seasonality of that business.
Revenues generated at least.
For the most recent fiscal year.
Will it be a separate segment.
Going forward.
So I believe as far as segment reporting I believe it's going to be under domestic upholstery, because they have domestic cut and sew operations.
And the seasonality of it actually in the outdoor category is change to very much a year round business obviously.
Obviously, I don't mean, youre going to be in Minnesota, and selling a bunch of outdoor in the winter, but there are a lot of states that do sell outdoor year round and some of those would probably surprise you but.
So we don't think Theres, a big season seasonality component in that business, it's pretty consistent.
As far as <unk>.
One of the Big Wise for Us was.
You've got a relatively smaller company debt.
Has a great look a great customer base, a higher margin profile that we're able to bolt on a lot of a lot of our scale and operations from logistics to where.
Our house into showrooms. So that's why they were the first time that they've been able to show at the high point market.
Which was really pretty dramatic from the response from a response standpoint, so we feel like our ability to grow that business and make it incredibly accretive for us is really in our wheelhouse and it's the biggest reason we did it as we felt like we could make it accretive.
Okay.
As far as the scale.
So it's roughly $25 million business.
Today.
But we believe that's quickly going to change.
Okay, great and where do they do they manufacture onshore or do they import how is their sourcing.
So they they import a lot of their frames and things that they're utilizing.
Tables frames for sofas things like that but.
Domestically do the cushions in the cut and sew.
Do that domestically in California.
Okay. So they have a separate plant.
That's correct.
Okay great.
Who was the seller.
It was the founders.
It was a partnership.
There were three partners.
Okay. So it was the founding family plus two other partners.
Correct.
No private equity involved that's correct.
<unk> family. The founding member has stayed with us and works for us today.
He is under West Stuart.
That's correct and he's on unemployment contract.
Yes, Thats correct, okay, good that sounds like a winner.
We believe so.
As a reminder, if you'd like to ask a question at this time that is star then one.
Our next question comes from Jeff Gagan with global value investment Corp.
Good morning, gentlemen.
Yeah.
Couple of quick questions regarding your accelerated or elevated level of freight cost how much of that have you been able to pass on to your customer.
I would say across our businesses.
Okay. So let's start with Hooker branded we were able to pass on most if not all of it.
We were a little bit we've been a little bit behind due to our philosophy of protecting the backlog on hooker branded mainly because thats, a mostly sold order backlog. So when you when you affect that with the price increase youre actually affecting an actual sold order to customer that one of our partners is already priced so.
That's the reason for our philosophical difference on that.
Number two on the other side of the business.
We were definitely we were probably in line for most of the year.
Most of the brands of <unk>, one that was not.
One that did not keep up with AC H.
Which fell drastically behind.
And really created.
The PPV purchase price variance created high levels of purchase price variance, where you're at these high levels of freight coming in where the pricing was not adjusted appropriately and it really hurt us.
Thank you.
With regard to your inventory level at $75 million.
And what is your objective inventory level.
Oh.
We probably could do with another $10 million.
I think on the HMA side, I think we just need to redeploy inventory dollars on the hooker side I think if we have another $10 million, we can better service our customers.
Okay.
Jeremy you said the worst would be incredibly accretive how are you measuring the accretive this.
Really.
We're measuring that by what we believe we can.
Increased operating income.
<unk> ability of that company is really how I am thinking about it and we think we can leverage sales. We believe we can grow it in revenues, but as far as what I consider accretive definitely profit.
You said that how does its margin profile compared to your business overall.
It compares much more it aligns with the Hooker branded segment.
Mostly.
Great and last question in your prepared comments in your press release, you used the term.
Transformative strategic initiatives, although you talked about a lot of things that are changing with your business.
What specifically what are you referencing in making that statement.
While transformative.
When you look at the Hooker legacy companies going from.
Whats called the main building in high point showroom, which.
It doesn't have the it doesn't have the higher ceilings. It doesn't have the natural light it doesn't have the audience that we feel we will get in the show place showroom.
Show place, we believe we will we will have.
It could be as much as 10 times the exposure, particularly in the interior designer.
<unk>, which will give us.
It will feed into our desire to do more business in that channel.
We also believe it will be great for our brick and mortar channel and as you know e-commerce really isn't as dependent on showroom, but we believe that's going to help us in a pretty major way. So that's why I'd categorize it as transformative.
Yeah.
And does that others on the other side of the business portfolio as a new initiative that we're working through on HMA side <unk>. Historically really went to a we're going to sell megas and we're not going to focus on a lot of the other brick and mortar retailers. So we're changing that approach.
We still want to grow our makeup business with with some really good customers on that side of the business that we're going to continue to try to grow with new projects. There's a lot of things going on in that arena, but.
Portfolio is we're going to really combine the power of Alaska Samuel Lawrence.
H.
And <unk> too.
To really show what these lines what these companies can do together from a presentation standpoint, and all in stock and Savannah in at a 90 plus percent level of <unk>.
Inventory able to ship right away.
It's a very new scenario for that company and it will growth it will grow incremental business in a very different way than what we're focused on now.
I appreciate that.
Follow on.
How if at all will this transformative change to capital allocation priorities.
We don't believe it's going to necessarily raise our working capital significantly because the for example portfolio that I just spoke of that's more of a working capital shift so much of our working capital was an hgh and driven towards.
Really just e-commerce , so we're shifting.
Significant portion of that to the other companies like <unk> Samuel Lawrence in order to drive their business through.
Different channels versus just e-commerce , so it's going to it's really going to shipped versus increase.
Beyond updating showrooms, that's really the only right.
Correct.
Thank you for your comments and good luck to both of you. Yes. You are welcome. Thank you. Thanks, Jeff.
That concludes today's question and answer session I would like to turn the call back to Jeremy Hoff for closing remarks.
Thank you Liz.
I would like to thank everyone on the call for their interest in Hooker furnishings, we look forward to sharing our fiscal 2023 first quarter results in June take care.
This concludes today's conference call.
You for participating you may now disconnect.
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